CBS: Don’t expect the economy to rebound significantly

posted at 10:41 am on May 30, 2014 by Ed Morrissey

After yesterday’s sharp downward revision to Q1 GDP put the US economy firmly in contraction, many analysts insisted that the results were anomalous. CNN called the -1.0% result “not a big deal,” and insisted that the spring would have a “bounce back” in economic activity. Reuters chalked it up to bad weather in winter. Others pointed to gains in the housing market and falling unemployment to argue that the rebound had already begun.

Not so fast, CBS analyst Constantine von Hoffman warns. Contractions are rare enough events outside of actual recessions that they’re hardly “not a big deal,” and the economic indicators on which the sunny optimism relies actually are not as positive as their top-line numbers suggest. For instance, the housing market is only gaining for a narrow slice of inventory, while the rest of the market is stagnating — or worse:

While the overall price of homes has increased, the numbers of homes being sold has decreased. The price rise stems from a schism in the real estate market: Sales of the priciest 1 percent of homes continue to increase, even as they fall for the other 99 percent.

A report released Tuesday by real estate research firm Redfin found that sales of the most expensive homes were up 21.1 percent through April of this year, while they’ve fallen 7.6 percent for the rest of the market. That follows a gain of 35.7 percent in 2013 for the top 1 percent and just 10.1 percent for less expensive homes. In 2012, sales increased by 17.5 percent and 2.9 percent, respectively.

The report noted: “While home sales have shown meager to modest gains in the non-luxury portion of the market in Oakland (up 2.2 percent over last year), Miami (up 1 percent), Raleigh-Durham (up 1.2 percent) and Atlanta (up 4.8 percent), other markets including Phoenix (down 15.7 percent) and Minneapolis (down 12.5 percent) display a strange (and perhaps troubling) dichotomy: For the top 1 percent, the housing market is still booming. But for the rest of the market, the recovery is running out of gas. As home prices have risen, wage and job growth have failed to keep up.”

On employment, the jobs being created are significantly short of what is needed to get people back in the labor force, and lower paying than the jobs that are being lost:

“It’s what we typically think of as middle-skilled workers — for example, construction workers, machine operators and administrative support personnel — that are hardest hit during recessions,” William C. Dudley, president of the New York Federal Reserve said in a speech last week. “Further, a feature of the Great Recession and indeed the prior two recessions is that the middle-skill jobs that were lost don’t all come back during the recoveries that follow. Instead, job opportunities have tended to shift toward higher- and lower-skilled workers.”

Middle-skilled workers frequently have to take lower-paying, lower-skilled jobs when their jobs disappear. According to the Bureau of Labor Statistics, the economy added 288,000 jobs in April. Of these, 24,000 came from temporary business help services, 35,000 were retail jobs, 40,000 were education and health services and 15,000 were in what is called “other services.” The report noted that within this sector, “employment in personal and laundry services continued to trend up; this industry has added 32,000 jobs over the past 12 months.”

The one good sign from yesterday’s BEA report was that consumer spending continues to grow over the 3% mark. That’s not a good sign in and of itself — consumers can have irrational spending habits just the same way investors can have “irrational exuberance.” Its value comes as an indirect measure of the economy more than just the contribution it makes to the GDP. It gives a solid indication that consumers are experiencing the actual on-the-ground economy in a positive way.

Even that positive gloss was countered by the significant drop-off in business investment in Q1. That indicates that investors and owners are battening down hatches for the near future rather than getting ready to revel in a sharp rebound. We’ll see which group has a better handle on the economic future, but von Hoffman’s skepticism looks like better advice than shrugging off a -1.0% GDP result as “not a big deal.”

Key areas of decline were exports, inventories and nonresidential fixed investment. In other words, whatever happened was happening on the business side.

This doesn’t necessarily signal a slide into another recession, so don’t rush out to change your money into gold certificates and canned goods. The lousy weather could easily have depressed all three categories, after all. The markets aren’t freaking out; they were expecting this downward revision.

That said, as I wrote last month, this is a sign of an economy that is still very weak. It has been six years since the financial crisis. Federal government spending is still around 21 percent of GDP, up from 19 percent in 2007, and the Federal Reserve still has a very expansive monetary policy. Under those circumstances, a quarter of negative growth is pretty unsettling.

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It has been six years since the financial crisis. Federal government spending is still around 21 percent of GDP, up from 19 percent in 2007, and the Federal Reserve still has a very expansive monetary policy. Under those circumstances, a quarter of negative growth is pretty unsettling.

No doubt the bottom will fall out eventually. It’s only a question of when not if.

I think I remember during the Reagan boom that cold weather was to blame (explain) HIGH GDP rates. You know, high demand for coal,, heating oil, transportation of those goods to consumers and all the economic activity that goes into keeping humans warm, food on the table and their things (like autos) functioning.

Now, bad weather, what? Depresses consumer shopping? In a era where you can buy stuff online?

What I keep wondering is why this GDP revision was pretty much “hidden” everywhere (including Drudge) farther down the page. After all, it must be REALLY bad if the Obama administration has massaged the numbers like always and it STILL comes out as -1%

Don’t worry- the Administration and our political masters in Congress will bump up government spending to get that old GDP booming again.

Its like when you take money out of your savings account (the taxpayers’ pocket) and move it into your checking account (political cronies’ pockets); it means you have actually created new money you can just spend and spend and spend…

Until the savings account runs dry, and then you can tap your 401K (taxpayer’s 401Ks- the last big piggybank).

All part of the plan. When the Dems spoke of a “reset button” what they were really referring to is their desire to collapse the American system and reset it according to their own desires.

People deserve what they’re getting, however, because they voted for the Dems and their idiot policies. Their federal sugar daddy is going to run out of other people’s money eventually, and watch out then.

People deserve what they’re getting, however, because they voted for the Dems and their idiot policies. Their federal sugar daddy is going to run out of other people’s money eventually, and watch out then.

I’m kinda looking forward to taking my revenge on those who voted for the Dems and will end up terrorizing my neighborhood.

We live in Obamaville and are mired in the ObamaDepression, directly because of Obama’s failed, Marxist policies. And the economy will continue to stagnate or even get worse as long as he’s occupying the White House.

Just like they tout the unemployment figures, the amount of people applying for bennies are down and it’s supposed to be a big deal but they never talk about the labor participation rate, that’s taboo.

Just like they tout the unemployment figures, the amount of people applying for bennies are down and it’s supposed to be a big deal but they never talk about the labor participation rate, that’s taboo.

major dad on May 30, 2014 at 11:53 AM

Yes, they’ve been omitting that little figure since The One’s first day in office.

Because it wouldn’t look good for him and the rest of the Dims if the reported unemployment number was north of 12%. Couldn’t have that, that would be…truthful.

William C. Dudley, “Further, a feature of the Great Recession and indeed the prior two recessions is that the middle-skill jobs that were lost don’t all come back during the recoveries that follow. Instead, job opportunities have tended to shift toward higher- and lower-skilled workers.”

Middle-skilled workers frequently have to take lower-paying, lower-skilled jobs when their jobs disappear.

I would hope that many of the middle-skilled workers realized and found opportunity to gain more education during the recession. I know of a few people that started school again at the same time I was in college. They knew their construction jobs wouldn’t be available again and wanted to be able to jump into management rather than resort to the low-skilled positions as noted.

Economic growth is racist and leads to bad things like income inequality and people getting off of welfare checks.
By 2016 economic growth will be sexist and lead to bad things like income inequality and people having to rely on themselves and stuff…

Economic growth is racist and leads to bad things like income inequality and people getting off of welfare checks. Of course, by 2016 economic growth will be sexist and lead to bad things like income inequality and people having to rely on themselves and stuff…

Real estate is local so I don’t think you can use performance all over the country to judge. I have a place I would love to sell. So do others and 3/8 of the units are officially on the market. I’m holding back.

We have a president who doesn’t understand any of what drives the economy. He’s hell-bent on making his socialist changes, consequences be damned. Unfortunately he believes everything he says and we’re stuck with a stagnant economy for another 2 1/2 years.

Rising house prices don’t reflect a good economy, just a shortage in inventory and rising cost of building materials since the last building boom.

Tater Salad on May 30, 2014 at 12:04 PM

Very true. And just to add to your point, a rise of percent or two, really doesn’t have much effect when we’re still under water by 30-40% from the start of the ObamaDepression.

Meople on May 30, 2014 at 12:09 PM

Two other thoughts on house prices. First, the reason for the increase is in the artificially low interest rates which allow buyers to afford more house. The second is rising house prices don’t directly add to the economy because it doesn’t directly add money into peoples wallets or grow the economy.

Two other thoughts on house prices. First, the reason for the increase is in the artificially low interest rates which allow buyers to afford more house. The second is rising house prices don’t directly add to the economy because it doesn’t directly add money into peoples wallets or grow the economy.

Tater Salad on May 30, 2014 at 12:31 PM

And isn’t the mortgage deduction on our taxes going away this year? I thought that was part of the Trillion dollar tax hike that Oblahblah did last year. Not sure though.

If that’s the case, that’s going to be yet another big factor that people will start taking in the wallets next April.

I use the eyeball test. Each day I drive along one of the most traveled city roads in Texas. I see open storefronts everywhere. There’s no way this country is about to hit 4 percent. Anyone thinking that lives in Washington or Manhattan.

Related – nominal (non-inflation-adjusted) personal spending fell by 0.1%, well off expectations of a 0.2% increase. That just happens to be the first third of the Personal Consumption Expenditures portion of GDP.

The Presstorian Guard – Economic Division is blaming…wait for it…wait for it…the cold winter for that.

The rats are bailing on the sinking, Good Ship Obama, as she slowly sinks into the murky, oily depths of the Gulf of Mexico…Maybe that will finally plug that BP Oil Spill hole?? See ya’ Jay Carney, you lying crap weasel…

Business investment is down, and so is private capital investment – the sort that actually funds new start-ups and builds factories, and is not just passed around Wall Street – and these are essential components for growth.

Housing should be evaluated by Freddie Mac’s “MiMi” or multi-market index. This measures overall price trends nationally. A score of 0 means the market is balanced, stable. Scores between +2 and -2 are within range and are considered more indicative of short-term direction. Over +2 is measurable expansion of the market and under -2 is contraction.